Working Paper No. 38: Yang Du; Peng Jia: Minimum Wages in China: Standard and Implementation
Du, Yang; Jia, Peng
Published: 2015/11/7 15:24:58    Updated time: 2015/11/7 15:24:58
Abstract: Utilizing various sources of data, this paper describes the evolution of minimum wage system in China and analyzes its enforcement. In 2010, 13% of workers in our sample earn wages below local minimum wages. This result is worse than most of developed countries but better than countries with about the same level of economic development as China. Both descriptive statistics and regression analysis indicate that some focused groups of workers ought to be targeted when implementing the minimum wages, including female and less educated workers. Our analysis further indicates that the effect of compliance in minimum wages is not only determined by the effort to enforcement, but also correlated with the level of minimum wage, economic structure, ownership type, and labor market conditions, etc. Our study also implies that the current minimum wage level in China is in accordance with China’s current stage of economic development, and frequent and large increase of minimum wage should be restrained.
Keywords: Minimum Wage Standard, Minimum Wage Enforcement, Policy Design

Authors:

        Du, Yang ---- Institute of Population and Labor Economics, CASS;

        Jia, Peng ---- Institute of Population and Labor Economics, CASS

 

Introduction

The minimum wage system has been widely accepted in many countries, which makes it one of the fundamental pillars of labor market institutions. The original intention to set up minimum wage is to intervene the market wage rate at equilibrium, so the institution per se is regulative. When looking at the compliance of minimum wage, the leakages exist in almost every country, which brings up controversy with the institution in terms of its effectiveness and enforcement. Therefore, the policy makers should pay attention to how to design the minimum wage system effectively.

It has been more than two decades since the introduction of minimum wages in China. In the past decade, the minimum wage has been influencing the labor market outcomes. The existing studies focus on its impacts on employment (Ding, 2010; Ma et al., 2012), working time (Jia and Zhang, 2013a), spillover (Luo and Cong, 2009; Jia and Zhang, 2013b), and income distribution (Luo, 2011). Concerning the minimum wage per se, however, the policy makers should care about whether the minimum wage is effectively enforced and what affects the compliance of minimum wages.

The first message we need to evaluate the implementation of minimum wage is to look at the share of workers who earn below the minimum wages. Based on the urban household survey data we use in this paper, in 2010 there is 13.26% of workers whose monthly wages are less than local minimum wage. The share is 17.26 and 9.84% in 2005 and 2001 respectively. International comparison indicates that developed countries tend to have good performance in compliance of minimum wage. According to a report by Bureau of Labor Statistics (2013), in 2012 only 2.6% of workers are reported to work below the federal minimum wages in United States. Observation on United Kingdom reveals that 1% of workers earn less than minimum wages (Machin et al., 2003).

In contrast, the situation is much more serious in developing countries where the informal employment is ubiquitous. In Brazil, 5-10% of formal employment and 15-30% of informal employment are reported wages below minimum wage